The Four Horsemen of the Nordic Insurance Market
Christian mythology pronounces the four horsemen as harbingers of imminent change symbolizing conquest, war, famine and death. Theological interpretation of the same finds its roots in events around the fall of the Roman Empire. Eschatological references apart, let us now talk in the mundane language of business.
My reason for using such a jarring analogy in context to the insurance business in the Nordics, is not to sound like an alarmist; but like a true honest-to-goodness capitalist I am shouting-out an opportunity in the making. I believe that the four horsemen of Nordic insurance are harbingers of change for sure, however, not as fatalistic as the originals. I have previously argued that the changes in the insurance sector are profound and disruptive in more mature markets. In this text I continue on the same lines bringing to fore the tremors in the Nordic Insurance market.
1st Horseman: Mobility
Ability to carry the internet in our pocket supported by an array of tons of sensors makes our smartphone the single most puissant tool in our life. The penetration and adaptation of smart devices has impacted our societies in unprecedented way. In the Nordics the smartphone penetration among internet users is estimated to be between 94% (Finland) to 97% (Norway). The survey published by Buzzador in April 2016 was carried out for all age groups between 16 to 65 years of respondents.
Digital disruptions are catching up with the insurance sector- bit late considering the risk averse nature of the industry. Our industry is not in the business of taking risks but the business of avoiding risks. One midsize insurance company representative last month shared that over 60% of access to their website was made over mobile devices. Every possible imaginable and unimaginable services is and will be expected to be mobility supported; insurance services being no exception. Those who turn a deaf ear to the neighing of the mobility horseman, might have to find ways to muddle through the explicit demands of our customers in a reactive way. The in-explicit and imperceptible consumer needs and desires on the other hand could potentially allow us a small window of opportunity to conceive ingenuities that will result in sustainable business possibilities. Mobility already to be the central theme for all user experience and consumer rendezvous.
2nd Horseman: IoT (Internet of Things)
The IoT horseman has a very corrosive nature. The devices connected and subsequently the data generated will chip away at established norms of risk management. We are being constantly forced out of our somnolence and blithe to be highly responsive and proactive. The pressure of optimization will ensure we truly become a mere component in the human-machine ecosystem.
Usage based insurance (pay-as-you-drive) and automated cars are the most visible and lionized examples of the Internet of Things (IOT) revolution, but are in fact just the tip of the iceberg. As we move towards an idealized world of interconnected societies the impact on insurance lines - automobile, life and health, property, devices, shipping, travel et al. can hardly be over emphasized. The avalanche of data emanating from connected sensors across the industries will mean new innovative products and services that need to be designed. Insurance will now need to be personalized for each insurable asset - animate or inanimate, thus throwing up new challenges with respect to data quality & sharing, regulations, privacy and more. At the same time, the basic value proposition of the insurance business is to hedge the risk across a similar and relatively homogeneous group. How will risk be spread and hedged efficiently if individualized data is sought and available? How do we address the ethical issues related to the unprecedented intrusion of privacy? How optimum is optimum enough if we allow machine learning algorithms to keep optimizing? Questions like these and more will become the inspirations for new opportunities. The IoT horseman is thus a caustic phenomenon eroding the present with an ever-changing new normal.
3rd Horseman: Sharing economy
The growth of Peer 2 Peer insurance groups, social media and sharing economy means return of insurance to the ‘basics’ where empowered by digitization, small groups have their own risk pooling and sharing mechanisms. This sharing economy is projected to touch cross 300 billion Euros by 2025 (Zuoh) and represents a disruptive force especially for the Property and Casualty insurance markets. In fact the lines between personal and commercial lines will increasingly get blurred where utilization of assets can be both for commercial and personal purposes. With owners and consumers moving from a ‘Ownership’ to a ‘Rental’ model this will mean evolution of new business models from perspective of product design, distribution, underwriting, pricing, policy servicing and claims management. Self-driven cars create an existential challenge for the entire auto insurance market as it is prevalent today.
What make the 3rd horseman of sharing economy (peer2peer) extremely dangerous is the underlying threat of making the entire insurance sector irrelevant and obsolete! Imagine in a utopian society the hedging of the risk is managed by the members directly on a meritocratic system enabled by technologies like distributed ledgers. The middleman simply has no place! On the other hand the middle man could become a trusted member of the said utopian society and facilitate the meritocratic system and value-add to the base operations creating the single largest insurance opportunity!
4th Horseman: Invulnerability Syndrome
The invulnerability syndrome is a rather strange and unprecedented phenomenon. Our society has traditionally shared the same view and interpretation of risks for a very long time. However, be it because of technology disruptions or business disruptions, the very objects that we believe are valuable and need securing is changing. Do I really need a comprehensive insurance for my car considering the dramatic drop in accidents and simultaneous rise of sensors that ensure safety? With self-driving cars no longer a myth but a reality, the liability could be on the product or the person depending upon whether the computer or a human is in control. How is my total cost of ownership changing when most objects around me are consumption/usage/sharing based? Do I really need a house insurance bundle when the 5 most valuable possession of mine are mobile phone, bicycle, headphones, data-pad and my data itself? How to objectify data in order to insure it? Nordic socio-political and Institutional support structure dilutes or substantially alters the use cases for life, pension and health too.
The 4th horseman of invulnerability syndrome exploits the subjective perception of threat and portrays it lower than the ‘real’ status quo. Paradoxically, the absence of the component of fear threatens the very foundation of the insurance business and hence this horseman possesses a veiled threat that simply cannot be ignored.
Clippety-clop and clouds of dust
The sounds and glimpses of the four horsemen in our midst are already audible and visible. Take for instance the Fair insurance company in Finland or Tribe in Norway that leverages the peer 2 peer concept in distribution as well as claims. Greater Than a niche player in Sweden challenges our traditional perceptions of the car ownership, usage and risks. Another Swedish innovator BIMA leverages mobility to the fullest in reaching with micro insurance products globally. Tryg, one of the largest insurance companies in Nordics has hosted a hub in their headquarters to incubate startups in order to foster the culture of innovation in the company. Then there are several example of how niche players are trying to address the changing needs of the society by bring the possibility of granular insurance product instead of pre-bundled products.
The early beacons of change are visible in the Nordics. Although the Nordic insurers, unlike their counterparts in other countries and regions are relative late, they are well aware that riding this disruption wave is now an existential issue and not just putting lipstick on a pig. Unfortunately a ‘wait and watch’ approach may not suffice. The horsemen will not just disturb the domino castles, they will trample them leading to an insurance renaissance.
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If you have any question or want deeper insights in the research findings, please feel free to reach out to me.